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W. R. Berkley Corporation Reports Second Quarter Results

July 25, 2017

Released : 07/25/2017

Net Income of $109 Million

GREENWICH, Conn.--(BUSINESS WIRE)-- W. R. Berkley Corporation (NYSE:WRB) today reported net income for the second quarter of 2017 of $109 million, or $0.85 per share.

Summary Financial Data

(Amounts in thousands, except per share data)

 
  Second Quarter   Six Months
2017   2016 2017   2016
 
Gross premiums written $ 1,887,152 $ 1,939,365 $ 3,823,359 $ 3,895,062
Net premiums written 1,564,251 1,642,569 3,211,089 3,306,291
 
Net income to common stockholders 109,004 108,967 232,451 228,477
Net income per diluted share 0.85 0.85 1.81 1.78
 
Return on equity (1) 8.6 % 9.5 % 9.2 % 9.9 %

(1) Return on equity represents net income expressed on an annualized basis as a percentage of beginning of year stockholders’ equity.

Second quarter highlights included:

  • Pre-tax return on equity was 12.7%.
  • Total capital returned to shareholders was $78 million, including $61 million of special dividends.
  • Before ordinary and special dividends, book value per share grew 3.5%.
  • The combined ratio was 95.1%, inclusive of 2.1 loss ratio points from catastrophes and 0.7 loss ratio points from non-catastrophe weather.
  • Investment income increased 4.8%.
  • Net realized investment gains were $40 million pre-tax and $26 million, or $0.20 per share, after-tax.
  • We established a surety and specialty commercial insurance business in Mexico.

The Company commented:

We continue to manage our business with a focus on creating long-term value for our shareholders. In the second quarter of 2017, book value grew at an annualized rate of 14% before dividends, and we declared a $0.50 special dividend to shareholders.

Market conditions are increasingly competitive, especially in the reinsurance business. We are willing to sacrifice growth in order to achieve underwriting profits and adequate returns. The combined ratio of 95.1%, including 2.8 points from weather-related losses, remained stable despite the competitive environment. We continue to see new opportunities in specialized areas.

Investment income, including realized gains, grew 30% year-over-year to $176 million. While our total return approach in our portfolio has resulted in more variability from quarter to quarter, it has provided improved returns overall. We expect the previously announced pre-tax gain of approximately $120 million from the sale of a real estate investment to contribute to our third quarter results.

Over the past five years, growth in book value per share before dividends and share repurchases has averaged 12%. Our focus continues to be on delivering value to shareholders through building book value as well as returning excess capital to shareholders.

Webcast Conference Call

The Company will hold its quarterly conference call with analysts and investors to discuss its earnings and other information on July 25, 2017, at 5:00 p.m. eastern time. The conference call will be webcast live on the Company's website at http://www.wrberkley.com/investor-relations/events-and-presentations.aspx. Please log on at least ten minutes early to register and download and install any necessary software. A replay of the webcast will be available on the Company's website approximately two hours after the end of the conference call.

About W. R. Berkley Corporation

Celebrating 50 years, W. R. Berkley Corporation is an insurance holding company that is among the largest commercial lines writers in the United States and operates worldwide in two segments of the property casualty business: Insurance and Reinsurance.

Forward Looking Information

This is a “Safe Harbor” Statement under the Private Securities Litigation Reform Act of 1995. Any forward-looking statements contained herein, including statements related to our outlook for the industry and for our performance for the year 2017 and beyond, are based upon the Company’s historical performance and on current plans, estimates and expectations. The inclusion of this forward-looking information should not be regarded as a representation by us or any other person that the future plans, estimates or expectations contemplated by us will be achieved. They are subject to various risks and uncertainties, including but not limited to: the cyclical nature of the property casualty industry; the impact of significant competition, including new alternative entrants to the industry; the long-tail and potentially volatile nature of the insurance and reinsurance business; product demand and pricing; claims development and the process of estimating reserves; investment risks, including those of our portfolio of fixed maturity securities and investments in equity securities, including investments in financial institutions, municipal bonds, mortgage-backed securities, loans receivable, investment funds, including real estate, merger arbitrage, energy related and private equity investments; the effects of emerging claim and coverage issues; the uncertain nature of damage theories and loss amounts; natural and man-made catastrophic losses, including as a result of terrorist activities; general economic and market activities, including inflation, interest rates, and volatility in the credit and capital markets; the impact of the conditions in the financial markets and the global economy, and the potential effect of legislative, regulatory, accounting or other initiatives taken in response, on our results and financial condition; foreign currency and political risks (including those associated with the United Kingdom's expected withdrawal from the European Union, or "Brexit") relating to our international operations; our ability to attract and retain key personnel and qualified employees; continued availability of capital and financing; the success of our new ventures or acquisitions and the availability of other opportunities; the availability of reinsurance; our retention under the Terrorism Risk Insurance Program Reauthorization Act of 2015; the ability of our reinsurers to pay reinsurance recoverables owed to us; other legislative and regulatory developments, including those related to business practices in the insurance industry; credit risk related to our policyholders, independent agents and brokers; changes in the ratings assigned to us or our insurance company subsidiaries by rating agencies; the availability of dividends from our insurance company subsidiaries; potential difficulties with technology and/or data security; the effectiveness of our controls to ensure compliance with guidelines, policies and legal and regulatory standards; and other risks detailed from time to time in the Company’s filings with the Securities and Exchange Commission. These risks and uncertainties could cause our actual results for the year 2017 and beyond to differ materially from those expressed in any forward-looking statement we make. Any projections of growth in our revenues would not necessarily result in commensurate levels of earnings. Forward-looking statements speak only as of the date on which they are made, and the Company undertakes no obligation to update publicly or revise any forward-looking statement, whether as a result of new information, future developments or otherwise.

 

Consolidated Financial Summary

(Amounts in thousands, except per share data)

 
  Second Quarter   Six Months
2017   2016 2017   2016
Revenues:
Net premiums written $ 1,564,251 $ 1,642,569 $ 3,211,089 $ 3,306,291
Change in unearned premiums 4,452   (82,776 ) (72,345 ) (219,163 )
Net premiums earned 1,568,703 1,559,793 3,138,744 3,087,128
Net investment income 135,264 129,049 284,123 259,182
Net realized investment gains 40,453 6,315 92,801 31,772
Other than temporary impairments — — — (18,114 )
Revenues from non-insurance businesses (1) 69,857 123,764 135,247 225,544
Insurance service fees 33,584 36,939 66,864 77,301
Other income 188   54   688   312  
Total revenues 1,848,049   1,855,914   3,718,467   3,663,125  
Expenses:
Losses and loss expenses 964,698 964,162 1,944,302 1,886,483
Other operating costs and expenses 616,632 581,955 1,220,332 1,164,414
Expenses from non-insurance businesses (1) 68,959 116,731 134,978 212,262
Interest expense 36,799   34,752   73,597   66,976  
Total expenses 1,687,088   1,697,600   3,373,209   3,330,135  
Income before income taxes 160,961 158,314 345,258 332,990
Income tax expense (51,388 ) (49,408 ) (111,011 ) (103,837 )
Net income before noncontrolling interests 109,573 108,906 234,247 229,153
Noncontrolling interests (569 ) 61   (1,796 ) (676 )
Net income to common stockholders $ 109,004   $ 108,967   $ 232,451   $ 228,477  
 
Net income per share:
Basic $ 0.87 $ 0.89 $ 1.88 $ 1.86
Diluted $ 0.85 $ 0.85 $ 1.81 $ 1.78
 
Average shares outstanding (2):
Basic 125,334 122,616 123,623 122,698
Diluted 128,601 128,575 128,546 128,562

(1) Revenues and expenses from non-insurance businesses declined because of the sale of a wholly-owned investment, Aero Precision Industries, and certain related aviation services businesses in August 2016.

(2) Basic shares outstanding consists of the weighted average number of common shares outstanding during the period (including shares held in a grantor trust established in March 2017). Diluted shares outstanding consists of the weighted average number of basic and common equivalent shares outstanding during the period.

 

Business Segment Operating Results

(Amounts in thousands, except ratios) (1) (2)

 
  Second Quarter   Six Months
2017   2016 2017   2016
Insurance:
Gross premiums written $ 1,745,734 $ 1,743,290 $ 3,515,139 $ 3,495,321
Net premiums written 1,438,169 1,463,751 2,932,303 2,942,958
Premiums earned 1,415,586 1,390,744 2,828,755 2,757,350
Pre-tax income 186,134 176,500 386,127 376,153
Loss ratio 61.1 % 61.9 % 61.0 % 61.2 %
Expense ratio 33.0 % 32.3 % 33.0 % 32.4 %
GAAP combined ratio 94.1 % 94.2 % 94.0 % 93.6 %
 
Reinsurance:
Gross premiums written $ 141,418 $ 196,077 $ 308,220 $ 399,741
Net premiums written 126,082 178,818 278,786 363,333
Premiums earned 153,117 169,049 309,989 329,778
Pre-tax income 14,771 23,834 19,364 51,816
Loss ratio 65.2 % 60.9 % 70.6 % 60.1 %
Expense ratio 39.2 % 40.0 % 38.1 % 39.2 %
GAAP combined ratio 104.4 % 100.9 % 108.7 % 99.3 %
 
Corporate and Eliminations:
Net realized investment gains $ 40,453 $ 6,315 $ 92,801 $ 13,658
Interest expense (36,799 ) (34,752 ) (73,597 ) (66,976 )
Other revenues and expenses (43,598 ) (13,583 ) (79,437 ) (41,738 )
Pre-tax loss (39,944 ) (42,020 ) (60,233 ) (95,056 )
 
Consolidated:
Gross premiums written $ 1,887,152 $ 1,939,365 $ 3,823,359 $ 3,895,062
Net premiums written 1,564,251 1,642,569 3,211,089 3,306,291
Premiums earned 1,568,703 1,559,793 3,138,744 3,087,128
Pre-tax income 160,961 158,314 345,258 332,990
Loss ratio 61.5 % 61.8 % 61.9 % 61.1 %
Expense ratio 33.6 % 33.1 % 33.5 % 33.1 %
GAAP combined ratio 95.1 % 94.9 % 95.4 % 94.2 %

(1) Loss ratio is losses and loss expenses incurred expressed as a percentage of premiums earned. Expense ratio is underwriting expenses expressed as a percentage of premiums earned. GAAP combined ratio is the sum of the loss ratio and the expense ratio.

(2) Commencing with the first quarter of 2017, the Company reclassified two businesses from the Insurance segment to the Reinsurance segment. Reclassifications have been made to the Company's 2016 financial information to conform with this presentation.

 

Supplemental Information

(Amounts in thousands)

 
Second Quarter   Six Months
2017   2016 2017   2016
Net premiums written:
Other liability $ 478,595 $ 491,904 $ 915,041 $ 936,369
Workers' compensation 372,006 345,475 798,563 745,382
Short-tail lines (1) 282,607 322,291 608,320 669,530
Commercial automobile 171,449 167,277 337,013 326,278
Professional liability 133,512   136,804   273,366   265,399  
Total Insurance 1,438,169   1,463,751   2,932,303   2,942,958  
Casualty reinsurance 86,386 108,387 179,927 212,447
Property reinsurance 39,696   70,431   98,859   150,886  
Total Reinsurance 126,082   178,818   278,786   363,333  
Total $ 1,564,251   $ 1,642,569   $ 3,211,089   $ 3,306,291  
 
Losses from catastrophes:
Insurance $ 32,540 $ 32,609 $ 46,844 $ 47,706
Reinsurance 429   7,901   623   8,440  
Total $ 32,969   $ 40,510   $ 47,467   $ 56,146  
 
Net investment income:
Core portfolio (2) $ 120,912 $ 107,341 $ 236,761 $ 217,647
Investment funds 8,895 18,456 35,544 35,093
Arbitrage trading account 5,457   3,252   11,818   6,442  
Total $ 135,264   $ 129,049   $ 284,123   $ 259,182  
 
Other operating costs and expenses:
Policy acquisition and insurance operating expenses $ 527,707 $ 516,287 $ 1,051,116 $ 1,021,542
Insurance service expenses 34,923 37,628 64,856 71,426
Net foreign currency losses (gains) 6,968 (13,084 ) 12,477 (9,356 )
Other costs and expenses 47,034   41,124   91,883   80,802  
Total $ 616,632   $ 581,955   $ 1,220,332   $ 1,164,414  
 
Cash flow from operations $ 115,960   $ 191,550   $ 191,432   $ 332,318  

(1) Short-tail lines include commercial multi-peril (non-liability), inland marine, accident and health, fidelity and surety, boiler and machinery and other lines.

(2) Core portfolio includes fixed maturity securities, equity securities, cash and cash equivalents, real estate and loans receivable.

 

Selected Balance Sheet Information

(Amounts in thousands, except per share data)

 
June 30,

2017

 

December 31,
2016

 
Net invested assets (1) $ 18,128,720 $ 17,857,006
Total assets 23,993,491 23,350,076
Reserves for losses and loss expenses 11,324,267 11,197,195
Senior notes and other debt 1,759,115 1,760,595
Subordinated debentures 727,924 727,630
Common stockholders’ equity (2) 5,286,518 5,047,208
Common stock outstanding (3) 121,271 121,194
Book value per share (4) 43.59 41.65
Tangible book value per share (4) 41.69 40.06

(1) Net invested assets include investments, cash and cash equivalents, trading accounts receivable from brokers and clearing organizations, trading account securities sold but not yet purchased and unsettled purchases, net of related liabilities.

(2) After-tax unrealized investment gains were $462 million and $427 million as of June 30, 2017 and December 31, 2016, respectively. Unrealized currency translation losses were $329 million and $372 million as of June 30, 2017 and December 31, 2016, respectively.

(3) During the three and six months ended June 30, 2017, the Company did not repurchase any shares of its common stock. The number of shares of common stock outstanding excludes shares held in a grantor trust.

(4) Book value per share is total common stockholders’ equity divided by the number of common shares outstanding. Tangible book value per share is total common stockholders’ equity excluding the after-tax value of goodwill and other intangible assets divided by the number of common shares outstanding.

 

Investment Portfolio

June 30, 2017

(Amounts in thousands)

 
  Carrying

Value

  Percent

of Total

Fixed maturity securities:
United States government and government agencies $ 443,951 2.4 %
State and municipal:
Special revenue 2,866,475 15.8 %
State general obligation 527,378 2.9 %
Corporate backed 394,302 2.2 %
Local general obligation 384,738 2.1 %
Pre-refunded 334,849   1.9 %
Total state and municipal 4,507,742   24.9 %
Mortgage-backed securities:
Agency 765,931 4.2 %
Residential - Prime 226,096 1.2 %
Commercial 189,661 1.0 %
Residential - Alt A 24,973   0.2 %
Total mortgage-backed securities 1,206,661   6.6 %
Asset-backed securities 2,192,030   12.1 %
Corporate:
Industrial 2,465,541 13.6 %
Financial 1,488,796 8.2 %
Utilities 267,926 1.5 %
Other 49,139   0.3 %
Total corporate 4,271,402   23.6 %
Foreign government 892,299   4.9 %
Total fixed maturity securities (1) 13,514,085   74.5 %
Equity securities available for sale:
Common stocks 447,600 2.5 %
Preferred stocks 165,207   0.9 %
Total equity securities available for sale 612,807   3.4 %
Real Estate 1,317,089 7.3 %
Investment funds (2) 1,188,897 6.6 %
Cash and cash equivalents (3) 765,762 4.2 %
Arbitrage trading account 634,016 3.5 %
Loans receivable 96,064   0.5 %
Net invested assets $ 18,128,720   100.0 %

(1) Total fixed maturity securities had an average rating of AA- and an average duration of 3.0 years, including cash and cash equivalents.

(2) Investment funds are net of related liabilities of $2.1 million.

(3) Cash and cash equivalents includes trading accounts receivable from brokers and clearing organizations, trading account securities sold but not yet purchased and unsettled purchases.

Foreign Government Fixed Maturity Securities

June 30, 2017

(Amounts in thousands)

 
  Carrying Value
Argentina $ 241,242
Australia 221,199
Canada 165,253
United Kingdom 82,870
Brazil 49,075
Germany 47,367
Supranational (1) 35,004
Norway 20,084
Singapore 15,800
Colombia 7,484
Uruguay 6,921
Total $ 892,299

(1) Supranational represents investments in the North American Development Bank, European Investment Bank and International Bank for Reconstruction & Development.

 

W. R. Berkley Corporation
Karen A. Horvath
Vice President - External
Financial Communications
203-629-3000

 

Source: W. R. Berkley Corporation

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